We all learned about price as one of the four P’s in marketing, an important component in the mix that makes a product or service a must-have for purchasing. But a lot has changed since those marketing pillars were first put in place, with competition more intense than ever, business moving at the speed of light and all things digital making the entire landscape, businesses and consumers included, dynamic and agile.
Several factors are key influences in the whole pricing process. These include:
- Consumers’ ability to comparison shop. With mobile devices, “show rooming” and aggregator websites and apps, consumers can comparison shop from their mobile devices in a matter of seconds.
- The ability to change pricing “on a dime.” Likewise, pricing software allows for pricing to be adjusted up or down, even many times during a single day, in response to changing market conditions.
- A constant influx of new products and services. There’ve always been new products and services entering the market, but the time required for R&D, rollout and promoting have all been compressed to a fraction of what they once were. Which means more and more products/services appear all the time.
Obviously, price still matters, more than ever. But the scenarios for how you arrive at an effective price have changed dramatically. How do you know when you’ve determined the right price? In How to Tell if Your Pricing is Right on SmallBizTrends.com, small business consultant, coach and speaker Andy Birol has written that pricing is “one of the greatest games in business.” He says that prices are much more than the amount of money that will be exchanged for a product or service. In addition to covering the cost of sales, distribution and collections, your prices must also reflect value and convey trust.
Every business should hold their pricing up to three scenarios that Birol says will tell you whether you’ve priced your products and services correctly:
- When hearing or seeing the price, the prospect immediately walks away.
He believes your prices are too high and doesn’t even stop to think about it.
- When hearing or seeing the price, the prospect immediately agrees to it and may seem a little too eager, happy—even celebratory—about it.
He believes your prices are too low and that he got away with a real bargain.
- When hearing or seeing the price, the prospect takes some time to think about it but ultimately agrees.
In this case, he has decided that there’s real value here and that he’d be losing out if he walked away.
Pricing strategies range from cost-plus (costs plus margin) to the “going rate” (based on competitors) to premium pricing, discount pricing, introductory pricing and loss-leader pricing, just to name a few. Keeping an eye on competitors and getting regular feedback from customers are two keys to effective pricing strategies.
You’ll also want to take into account what different numbers have come to mean to consumers. We’ve all been conditioned over our lifetimes by sales, discounts, value perception and high-end premium merchandise. Remember, even if your business is B2B, your customers are still conditioned to the same pricing cues. Here are a few pricing psychology principles you’ll probably recognize:
- The number 9 conveys value; .99 is perceived as a sale or great bargain.
- Due to the left-digit effect, buyers tend to put more emphasis on the left-hand numbers (as in 14.99) instead of rounding up.
- 0’s and .00 are perceived as premium or luxury quality. (The price of that Chanel purse is more likely to end in .00 instead of .99.)
- Using .00 and .99 pricing for different product lines within the same location can quickly telegraph “premium” and “discount” to buyers.
- Prices ending in numbers other than 9 quickly stand out to buyers. Some retailers may adopt a store-wide pricing scheme (all prices end in 7, for example, regardless of the merchandise) which then can become part of their unique brand identification.